related party transactions minority squeeze outs winding...
TRANSCRIPT
Related party transactions
Minority squeeze outs
Winding up under Companies Act
Vinod Kothari & Company
www.vinodkothari.com
Email: [email protected] / [email protected]
Kolkata
1006-1009 Krishna Building
224 AJC Bose Road
Kolkata – 700017
Phone: 033- 2281 7715/ 3742
Delhi
A-467, First Floor, Defence Colony,
New Delhi (110024)
Phone: 011-4131 5340
Mumbai
403-406,
175, Shreyas Chambers,
D.N. Road, Fort, Mumbai – 400001
Phone: 022 – 22614021 / 6237 0959
COPYRIGHT
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Vinod Kothari & Company. No part
of it can be copied, reproduced or
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explicit prior permission. In case of
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full link.
32
LODR proposed changes on
Related Party Transactions1
Minority squeeze-outs
under Companies Act, 20132
Winding-up under Companies Act3
AGENDA
LODR PROPOSED CHANGES ON
RELATED PARTY TRANSACTIONS
HighlightsExpanding the scope of RPs -
Any person or entity belonging to the promoter or promoter group- current 20% is req.
Any person or any entity holding 20% or more of the equity shareholding
To consider and indirect relatives also
Expanding the scope of RPTs-
Transactions between company and RP of subsidiary
Transactions between subsidiary and RP of company
Transactions between company/ subsidiary and their own RP
Transactions between company with unrelated party to benefit of its own/ subsidiary’s RP
Transactions between subsidiary with unrelated party to benefit of its own/ hold co’s RP
Exclusion to RPTs
payment of dividend,
issue of rights/ bonus shares, subdivision/ consolidation of securities,
buy back of securities, preferential allotment as per ICDR
Revision in the threshold of determining materiality of RPTs
Lower of: INR 1000 cr; or 5% of consolidated revenue, assets or net worth
Amendments in the current approval mechanism
Prior approval of audit committee and shareholders
for subsequent material modification (Material modification not defined)
For transactions involving an unlisted subsi./ exempted listed subsi. carrying value of 10% of standalone turnover/ assets/ networth of the subsi.
Elaborate disclosure before Audit Committee and shareholders
Fix tenure for recurring RPTs
Value of RPT as a % to the turnover/ asset/ net worth of the company & of the counterparty
RPT involving loan/ ICD etc.
Source of fund, details of indebtedness incurred if any, for the same eg. Cost of fund, tenure, interest
Terms of loan incl. interest, tenure, security, covenants
Proposed utilisation by the recipient
Status of long-term or recurring RPTs on an annual basis
Additional disclosure requirements in annual report;
Loans to firms/ companies in which directors are interested by name and amount’ for a listed entity and its subsidiaries
Introduction
SEBI constituted a Working Group (WG) under the chairmanship of Mr. RameshSrinivasan on Related Party Transactions.
The report of the Working Group was issued on 27th January, 2020.
Report provides for amendments in the provisions pertaining to RPTs under theListing Regulations, 2015
Need for such review of existing provisions:
complex/ innovative corporate structures
circular transactions, continuous intra-group lending
inadequate information to audit committee/ shareholders
7
Coverage of the Recommendations
Expanding the scope of related party and related party transactions;
Revision in the threshold of determining materiality of RPTs;
Amendments in the current approval mechanism;
Additional disclosure requirements in annual report;
Elaborate disclosure before Audit Committee and shareholders.
8
DEFINITION OF RELATED PARTY
Proposed addition to the definition of related party
The following would get covered in the proposed definition
The promoters irrespective of their shareholding
Existing definition requires 20% holding also
Significant Shareholder/ Investor (holding 20%)
10
Proposed definition of related party
Related Parties
Any person or entity belonging to the
promoter or promoter group
As per IND AS
Any person or any entity holding 20% or more of the equity shareholding
As per in CA 13
Definition of Related Party TransactionsProposed Changes
Broadly to cover the following
all circular transactions
on the face of it, the transaction is with an unrelated party but actual benefits flow to arelated party
the transactions at consolidated level
swap transactions
12
Proposed definition of RPTs
Transaction between the listed company and its own RP
Transaction between the listed company and RP of the subsidiary
Transaction between the subsidiary and RP of the subsidiary
Transaction between the subsidiary and RP of the listed company
Transaction between the listed company and an URP, purpose and effect of which is to benefit an RP of the listed company/ of subsidiary
Transaction between the subsidiary and an URP, purpose and effect of which is to benefit an RP of the listed company/ of the subsidiary
Existing definition:
“Related party
transaction” means a
transfer of resources,
services or obligations
between a listed entity
and a related party,
regardless of whether a
price is charged and a
"transaction" with a
related party shall be
construed to include a
single transaction or a
group of transactions in a
contract.
RP= Related Party
URP= Unrelated Party
Threshold for determining material RPTsProposed Materiality Threshold
To be lower of the following:
INR 1000 cr; or
5% of
Total consolidated revenue
Total consolidated assets
Total consolidated net worth
to be considered only in case of positive net worth of the listed company
14
Approval of Audit Committee & ShareholdersProposed inclusion in the listPrior approval of audit committee & shareholders to be applicable
For subsequent material modifications of RPTs
What would constitute a material modification not defined
Transactions involving the following as a party
unlisted subsidiary; or
listed subsidiary which is exempted from the CG requirements
If the transaction carries a value which is lower of the following:
more than 10% of annual standalone turnover of the subsidiary or
more than 10% of total standalone assets of the subsidiary or
more than 10% of standalone net worth of the subsidiary
To be considered only where the net worth is positive
Approval of shareholders in all cases proposed to be changed to a prior approval
15
Approval of RPTs by Audit Committee & Shareholders
16
Whether the transaction is an
RPT as per definition?
Whether listed entity is a party? Prior approval is required
Whether listed subsidiary is a party and exempted from Reg. 23 & from other CG requirements u/r 15(2)?
Whether the transaction can be considered as Significant Transaction?
Whether unlisted subsidiary is a party?
Whether the transaction can be considered as Significant Transaction?
Whether listed subsidiary is a party and not exempted from Reg. 23 & from other CG requirements u/r
15(2)? Prior approval is not required
Whether none of the above applies?
Yes
Yes
Yes
Yes
Significant transaction= value of which is more than 10% of
turnover or assets or net worth, whichever is lower, of the subsidiary
on a standalone basis
ADDITIONAL DISCLOSURES
Disclosures before Audit CommitteeThe long listType, material terms and particulars of RPT;
Name of RP and its relationship with the listed entity or its subsidiary, including nature of its concern or interest (financial or otherwise);
Tenure (should not be indefinite or open ended);
Value along with an upper limit and for recurring transactions, the aggregate value and the time period within which such limit will be exhausted;
The value of the proposed transaction as the percentage of the listed entity’s annual total revenues, total assets and net worth;
If subsidiary involved, the value of the proposed transaction as a percentage of the subsidiary’s annual total revenues on a standalone basis;
Justification as to why the related party transaction is in the interest of the listed entity;
A copy of the valuation or other external report, if any such report has been relied upon;
Value of the proposed RPT as a percentage of the counter-party’s annual total revenues, total assets and net worth;
Status of long-term or recurring RPTs on an annual basis. 18
Disclosure reg. Financial Transactions
If the transaction relates to any loans, ICDs, advances or investments made or given by thelisted entity or its subsidiary:
details of the source of funds in connection with the proposed RPT;
where any financial indebtedness is incurred to make or give loans, inter-corporate deposits,advances or investments,
nature of indebtedness;
cost of funds; and
tenure;
applicable terms, including covenants, tenure, interest rate and repayment schedule, whethersecured or unsecured and if secured, the nature of security; and
the purpose for which the funds will be utilised by the ultimate beneficiary of such fundspursuant to the RPT.
19
Disclosure before shareholdersDisclosure in explanatory statementSummary of the information provided to the audit committee pursuant to paragraph B(2)ofPart C of Schedule II;
Recommendation of the audit committee w.r.t. proposed transaction, specifying justificationfor why the transaction is in the interest of the listed entity;
Where the transaction relates to any loans, inter-corporate deposits, advances or investmentsmade or given by the listed entity or its subsidiary, the details specified under paragraph B(2) (f) of Part C of Schedule II;
Whether the approval of the RPT by the audit committee was unanimous;
A statement that the valuation or other external report, if any, relied upon by the listed entityin relation to the proposed transaction will be available for inspection at the registered officeof the listed entity;
value of the proposed RPT as a percentage of the counter-party’s annual total revenues,total assets and net worth;
Any other relevant information.20
Disclosure in Annual Report
Disclosure of ‘Loans and advances in the nature of loansto firms/ companies in which directors are interested byname and amount’ for a listed entity and its subsidiaries.
21
Disclosure to Stock Exchanges
Current framework for half yearly reporting:
Disclose RPTs on consolidated basis within 30 days from the date ofpublication of its standalone and consolidated financial results in the formatspecified in the relevant accounting standards for annual results to the stockexchanges.
Proposed framework for reporting every six months:
Disclose RPTs on the date of publication of its standalone and consolidatedfinancial results in the format prescribed by SEBI.
22
MINORITY SQUEEZE-OUTS
UNDER COMPANIES ACT, 2013
Modes of Takeover under Companies Act, 2013Provisions for takeover of
minority
Sec. 230 (11)* Sec. 235 Sec. 236
*Enforced vide notification dated 04.02.2020 (along with Companies (Compromise, Arrangement & Amalgamations)
(Amendment) Rules, 2020 & National Company Law Tribunal (Amendment) Rules, 2020
Highlights-
(a) For unlisted cos. Only
(b) min. shareholding- 3/4th
(c) Bank account must be
opened- when?
(d) Atleast 50% amount to be
deposited
(e) Can be objected- sec 230
(12)
Highlights-
(a) No min shareholding
(b) Requires assent of min 90%,
excluding acquirer’s holding
(c) Approval within 4 months of
offer
(d) One months’ notice to be sent to
dissenting shareholders
(e) Transferee may force buy
(f) On behalf of shareholders,
instrument to be executed by any
person authorised by Transferor
Highlights-
a) Must have min. 90% shares
(b) Minority shareholders may
make suo-moto application
(c) PC must be deposited for a
year
Takeover via Scheme of Arrangement (1/2)Sec 230 (11)
Applicability
Applied in case of unlisted companies only
Listed companies regulated by SEBI (SAST) Regulations
Eligibility
Application can be made by shareholders holding 3/4th shares
For acquiring remaining shares
Not applicable to any transfer/ transmission
Through contract/ arrangement or succession
Fee for filing of application
Rs. 5,000/-
“shares” means equity shares of the company,
carrying voting rights, and includes any securities,
such as depository receipts
Takeover via Scheme of Arrangement (2/2)Contents of the Application
Application of arrangement for takeover shall contain:-
Valuation Report
Highest price paid for the shares of the Target Company in the preceding 12 months
By any person
Consideration of the possible pricing parameters (PPP) for arriving at the fair value of the shares
Return on Net worth
Book value of shares
Earning per share
Price earning multiples
Details of bank A/c
Applicants must open a new bank A/c- WHEN?
For deposit of atleast 50% of the takeover consideration
Procedure For ApplicationPreparation of
scheme u/s
230 (11)
NoC received
from 90% of
creditors &
shareholders
Filing of First motion
application for
dispensation of meeting
Filing first motion
application for directions
for calling meeting
Order for dispensation
of meeting
By majority of
members/ creditors
holding 3/4th in value,
as the case may be
Order for calling of meeting
od creditors and members for
approval of scheme
Service of application
to authorities like RoC,
RD, ITO.
On approval, outgoing
minority to receive consideration
& in turn transfer shares
in the name of applicants
Second motion
application for
approval of scheme
YES NO
Protection of the MinoritySec. 230 (12)
230 (11) & (12) insulated from provisions of section 230 230 (11) & (12) read in line
with section 230The First view may be that the
provisions of section 230 (11) & (12)
are independent of other views,
according to which-
a. Aggrieved person u/s 230 (12) can
be any person
Min. 10% holding not required
b. Consent of creditors not necessary
It is an internal arrangement
between shareholders
Creditors may not be involved
The Second view may be that section 230
(11) & (12) be read in line with sec. 230
a. Provisions governing mergers and
arrangement applicable mutatis-
mutandis
As the governing section is 230
b. Aggrieved person u/s 230 (12) must
have min. 10% shareholding
c. Creditors’ approval is required
Corporate Acquirer with Majority Approval (1/2)Sec. 235
Any company with the intention of acquiringthe shares of another company will make anoffer through a scheme or contract.
No minimum shareholding required
90% of the shareholders’ assent is required
Of those shareholders whose shares areinvolved; and
Excluding the shareholding of the offeror/ itsnominee/ its subsidiary.
Approval required within 4 months ofmaking offer
Once approved, notice is sent to dissentingshareholders- Form CAA-14;
Within 2 months of expiry of 4 months frommaking offer.
Offeror to acquire minority shares
If no application is filed by minority within 1month of notice;
The acquirer shall send a notice along withinstrument of transfer and
pay the amount of consideration to the TargetCompany
such amount to be deposited in a separatebank account and make arrangements todisburse the same within 60 days.
Target Company shall send an intimation tothe dissenting shareholder informing themabout share transfer registration and receiptof consideration.
Corporate Acquirer with Majority Approval (1/2)Sec. 235
Transferee Co. makes
offer of acquire shares
of Transferor Co.
Transferee co. gives notice to
dissenting shareholders
Approved by shareholders- min.
9/10th of those whose shares are
involved
Application
by dissenting
shareholders
No
acquisition
NCLT
dismisses
application
Transferee acquires minority
shareholding in lieu of
consideration
4 months
2 months
1 month
No Yes
Yes No
Takeover by Minority Squeeze-Out Sec. 236
Objective-
provides a way for gaining the complete control of a company in which the acquirer# already has 90% shareholding.
Who can acquire?
Any person (along with PACs*) becomes holder of 90% shares by virtue of-
Amalgamation;
Share-exchange;
Conversion of securities; or
For any other reason
Such person shall make offer to minority to acquires shares
Minority shareholders may also make a suo-moto offer to sell their shares
Majority shareholder shall deposit the PC in a separate A/c for atleast 1 year
The amount shall be disbursed in 60 days
Company who’s shares are transferred, acts as the transfer agent
#*The term “acquirer” and “PAC” shall have samemeaning as provided under SEBI (SAST) Regulations,1997
Purchase Consideration u/s 236
Determination of value of shares
Listed Co.
In the manner laid down by SEBI; and
Unlisted Co.
Highest price paid by the acquirer, during last 12
months
Fair price of the shares to be determined by the reg. valuer, on parameters incl.
Net worthBook value of
sharesEarning per share
Price earning multiple
Vis-à-vis industry average
Comparing the Features for Forceful Exit (1/4)
Sl. No. Basis of DifferenceSec. 230 (11)
(by way of scheme)
Sec. 235
(by way of a contract)
Sec. 236
(minority squeeze-out)
1. Eligible acquirer Any members who
holds shares (along
with other members) >
75%
No min. shareholding Any person who holds
> 90%, individually or
with PACs
2. Eligible Target Co. Any unlisted company Any company Any company
3. Threshold for approval Members holding
3/4th in value;
Creditors having o/s
debt of min. 3/4th in
value
Approval by members
holding 9/10th in value
No approval required
since the offer for
acquisition is made by
90% shareholders.
4. Meaning of shares Equity shares;
Securities having
voting rights
Equity shares Equity shares
Comparing the Features for Forceful Exit (2/4)Sl. No. Basis of Difference
Sec. 230 (11)
(by way of scheme)
Sec. 235
(by way of a contract)
Sec. 236
(minority squeeze-out)
5. Involvement of
scheme
Drafting of scheme is
involved
Drafting of scheme is
involved
No scheme involved
6. Involvement o NCLT Involved in the 1st stage-
filing of application.
Also, involved in case
dissenting shareholders file
application.
Not involved in first
stage.
Shall be involved if
dissenting shareholders
file application
NCLT not involved.
7. Suo-moto offer by
minority
No such provision No such provision Can be made
8. Exclusion of related
parties
Related parties are not
excluded for the purpose
of considering the votes
The acquirer company/
its nominees/
subsidiaries are
excluded for
determining voting
results
Related parties are not
excluded for the purpose
of considering the
shareholding.
Comparing the Features for Forceful Exit (3/4)
Sl. No. Basis of DifferenceSec. 230 (11)
(by way of scheme)
Sec. 235
(by way of a contract)
Sec. 236
(minority squeeze-out)
9. Scope of filing
application by
dissenting/ minority
shareholders
Available u/s 230 (12) Available No explicit provisions
10. Payment of
purchase
consideration
50% of the PC- To be
deposited in a separate
bank account
Only to be paid when time
for filing of application by
dissenting shareholders has
expired
Only when the offer for
acquisition made, and
the time for delivery of
share certificates by the
minority has expired.
11. Time period for
keeping the PC
Immediate disbursement
on approval of the
application
No time period for keeping
PC in separate A/c.
Disbursement has to be
made within 60 days
PC to be kept in
separate A/c for 1 year.
Disbursement has to be
made within 60 days.
Comparing the Features for Forceful Exit (3/4)
Sl. No. Basis of DifferenceSec. 230 (11)
(by way of scheme)
Sec. 235
(by way of a contract)
Sec. 236
(minority squeeze-out)
12. Scope for price
negotiation
No scope for negotiation
by the minority
Price negotiation by
majority of the minority
can be done.
13. Delivery of share-
certificates
No specific provisions Not required as the
Target Company can on
behalf of the
shareholders execute the
transfer.
Specific delivery
required, however, in the
event of non-delivery
then Target Company can
do the needful as an
agent for transferring the
shares in favour of the
acquirer.
WINDING-UP UNDER COMPANIES ACT
Governing Provisions for Winding-up
Winding up was completely
governed by Companies Act,
1956, by 3 modes-
(a) By the court- compulsory
winding up
(b) Voluntary winding up -
i. By members
ii. By creditors
(c) Winding up subject to
supervision of the Court
Prior to IBC, Companies Act,
2013 provided for-
(i) Voluntary winding up;
(ii) Winding up by the
tribunal;
After introduction of IBC,
(a) Voluntary liquidation has
been removed from the
scope of Cos. Act;
(b) Winding up for “inability
of pay debts removed
from IBC”
(c) Summary Process
Companies Act, 1956 Companies Act, 2013Insolvency and
Bankruptcy Code, 2016
Winding up of companies, in
case of “inability to pay
debts” is now subject to IBC.
Further, voluntary liquidation
is completely governed by
IBC.
Current modes of dissolution of a company
In light of various provisions under Companies Act & IBC, a company can be dissolved in thefollowing ways-
a. Compulsory winding-up under the Code;
b. Compulsory winding-up u/s 271 of Companies Act;
c. Voluntary winding-up under the Code;
d. Dissolution by way of merger u/s 230-240 of the Code;
e. By way of striking off name of company u/s 248 of the Act;
f. Winding up of unregistered companies u/s 375 to 378
Winding-up Process under Cos. Act (1/2)
Circumstances under which company can be wound up (Sec. 271)
(a) SR passed by the Company
(b) Co. has acted against the interests of the sovereignty and integrity of
India
(c) an application made by RoC,
Tribunal is of the view that affairs of
the co. are fraudulent
(d) Default in filing financials with RoC, for consecutive 5
F.Ys
(e) If Tribunal is of the opinion that
winding up of the Co is just and
equitable
CompanyAll or any
ContributorsRoC
CG or its
authorised personEligible Petitioners
Winding-up Process under Cos. Act (2/2)
Eligible Petitioners
Company
Must be accompanied by statement of affairs
All or any contributor(s)
Shares must have been either originally allotted or held by
him
+
For atleast 6 months in the preceding 18 months before commencement of winding-up.
Registrar
Other than in case of inability to pay
debt
Any person authorized by CG
Must be made only after obtaining a valid sanction
+
Giving a chance of representation to the
Company
Summary Proceedings for LiquidationSec. 361
Application for winding up u/s 361
RD shall appoint an Official Liquidator
OL shall take into his custody all assets,
effects and actionable claims
OL shall submit report to RD,
whether any fraud has been committed
If RD is satisfied that there has been a
fraud, he may order for investigation
On the basis of investigation report, RD may order for
winding up
30 days
Winding Up Rules, 2020 Highlights
Applicability
Applicable from 01.04.2020
In absence of any rules, winding-up under the Companies Act was governed by NCLT Rules,now stand replaced
Applicable for cases
u/s 271 of the Act; and
Summary liquidation process u/s 361 of the Act
Petition for Winding-up
Petition to be filed in Form WIN-1 or WIN 2
WIN-1 in case of petition other than by company
WIN 2 in case of petition by company
Petition must be verified by an affidavit
In form WIN 3
Statements of Affairs must be annexed along with
petition
Must be in form WIN 4
Information must not be older than 30 days prior
to filing of petition
Must be verified by an affidavit- in form WIN 5
Service of Petition
Every contributory shall be entitled to receive a copy of petition
Within 24 hours of requisition
Advertisement of Petition
Atleast 14 days before the hearing
In form WIN-6
Withdrawal of Petition
Application must be filed
Shall be allowed only upon adherence to order of Tribunal, including costs;
Must be advertised in the same manner as original petition
Liquidator under Winding-up Rules
As per Act
Appointment-
As per sec 275, Company liquidator (CL)or Provisional Liquidator (PL) shall be anInsolvency Professional under the Code;
Powers of the PL may be restricted byway of an order of the Tribunal
CL/ PL must file declaration within 7 daysof appointment disclosing conflict ofinterest, if any
As per Rules
Appointment
PL may be appointed before final order ofwinding up
Where application is not made by company,notice of appointment of PL shall be given to thecompany in Form WIN 7
Order restricting powers of the Tribunal must be inForm WIN 8
Notice of appointment must be made to theliquidator within 7 days- form WIN 9
Declaration by liquidator in Form WIN 10
WINDING UP ORDER
Order for Winding up shall be in form WIN-11
Order shall be sent within 7 days to
CL- Form WIN 12
RoC- Form WIN 13
CL must file a copy of the Order in form INC- 28 with RoC
CL must issue public advertisement upon order- WIN 14
Sec 278 provides that
“order for the winding up of a company shall operate in favour of all the creditors and allcontributories of the company as if it had been made out on the joint petition of creditorsand contributories”
Powers of CL upon Winding-Up Order
CL to take charge of assets and books & papers of the Co.
Where the promoters/ directors of the Co. do not cooperate, CL can file an application against them
May make an application before Tribunal thereby seeking direction upon any contributory/ trustee etc. to pay such sum to which the co. is entitled
Reports by the CL
First Report of the Liquidator (u/s 281)
Within 60 days of order
In form WIN 16
For reporting nature and details of assests of the Co.
Debts due; guarantees; list of contributories and their dues; Subsisting contracts etc.
Report about any fraud
Within 7 days of receipt of First Report, Tribunal may fix a date for consideration thereof.
Sec 288 requires CL to submit quarterly reports to the Tribunal
Settlement of list of contributories (1/2)Sec 285 read with Rule 28-35
Provisional List of Contributories (R.28)-
CL shall prepare the list within 21 days of winding up order
The list shall consist of every person who was a member on commencement on winding up
List shall be in form WIN-17
Must be divided into two parts
a. Contributories in their own rights
b. Contributories being representative of others
Notice of Settlement (R. 29)
The date appointed for settlement by Tribunal mist be notified to all contributories
In form WIN 18
Person giving notice, but swear on affidavit-form WIN 19
Affidavit of notice must be filed atleast 2 days before the hearing
Settlement List (R.30)
Upon hearing, final list is certified by the Tribunal, form WIN 20
Settlement of list of contributories (1/2)Sec 285 read with Rule 28-35
Notice of settlement (R. 31)
Notice of settled list received from the Tribunal must be given to all final contributors
In form WIN 21
Affidavit confirming service of notice
In form WIN 22
Supplemental list (R. 32)
Tribunal may add contributories to the list
Variation of list (R.33)
Supplemental list shall not have effect ofremoval of any existing contirbutories
Application for rectification of list (R. 34)
After settlement also, CL can make applicationfor rectification in the list
List of Contributories consisting of pastmembers (R. 35)
Unless so order by Tribunal, it shall not benecessary to settle list of past contributors
Advisory CommitteeSec 287 r/w Rule 36-43
Tribunal may direct for constitution of an Advisory Committee
ConstitutionNot more than 12 persons, being creditors and
contributors
Such other persons, as Tribunal may deem fit
Meeting with all creditors & ContributorsWithin 30 days of winding up order
For enabling the Tribunal to determine who shall be the members of the Committee.
Shall be chaired by the CL
Result of the meeting to be reported within 7 days in Form WIN 23
For filing up vacancy
CL must summon a meeting of the creditors and members
Tribunal may make order that vanacy might not be filled
The committee, not having less than 2 members may continue, notwithstanding any vacancy.
Meeting of Advisory Committee
As need be; or on request of CL or 1/3rd members
Quorum- 1/3rd or 2 whichever is higher
Act on majority of members
May resign by notice
If a member becomes insolvent, office shall become vacant
Any member may be removed on order of Tribunal
Meeting of creditors and contributors (1/2)Rule 44- 65
Notice of MeetingMinimum 14 days’ notice
Individually to every creditor, contributor,
Where creditors/ contributors > 500, notice by way of newspaper advertisement also
Notice shall be in Form WIN 25-29
CL shall be chairman
Or any other person nominated by him in form WIN 32
Notice may, at discretion of CL also be given to officers of the Co- WIN 30
Proof of notice to be submitted in Form WIN-31
Resolution at Creditor’s meetingResolution shall be deemed to be passed when
Majority in value
Present in person or proxy
give their assent
Resolution at Contributor’s MeetingResolution shall be deemed to be passed when
Majority in value
Present in person or proxy
give their assent
QuorumMin. 3 creditors/ contributors entitled to vote
Where total creditors/ contributors do not exceed 3, then all creditors/ contributors.
Meeting of creditors and contributors (1/2)Rule 44- 65
When can a creditor NOT vote
A creditor cannot vote in respect of any unliquidated damages, value of which is not ascertained;
in respect of any debt secured by a current bill of exchange or promissory note held by him
When can a Secured Creditor vote
a secured creditor shall, unless he surrenders hissecurity, state the particulars of his security,
shall be entitled to vote only in respect of thebalance due to him, if any, after deducting thevalue of his security.
Minutes of the Meeting
The chairman of the meeting shall cause minutes to be drawn up and fairly entered in the Minute Book within 30 days; and
signed by him or by the chairman of the next meeting.
A list of creditors and contributories present at every meeting shall be made and kept in Form WIN 33.
CL shall within 7 days of the conclusion of the meeting, report the result thereof to the Tribunal in Form No. WIN 34
Examination of Promoters/ Directors(Sec 300 R/W 139 to 154)
Where CL made a report stating fraud by thepromoters/ directors of the Co-
Tribunal may after considering the report,
direct that such person or officer shall attendbefore the Tribunal on an appointed day
To be examined as to the promotion orformation or the conduct of the business of thecompany or as to his conduct and dealings asan officer thereof.
Application can be made by CL, or any otherperson- Form WIN 61
Where application is made by other person,notice must be sent to CL
Issue of summons against the directors/promoters
Tribunal may, upon hearing, make an order for issuing summons against persons named in the order
Order shall be in form WIN 62
Summon shall be in form WIN 63
Atleast 7 days prior to date fixed for hearing
No person shall take part in examination other that CL and his Authorised Representative
Order directing examination shall be in form WIN 64
Sale by Company Liquidator
Sale subject to sanction & confirmation by Tribunal
No asset/ property of the Co. can be sold without prior permission of Tribunal
Sale must be done by an agent/ auctioneer
Must be done by public auction; or
By inviting sealed tenders; or
Electronic mode
Expenses of sale paid by the liquidator shall be reimbursed
Termination of winding up
When all affairs have been fully wound up;
CL shall filed application for dissolution
Within 10 days along with audited financial accounts & auditor’s certificate
Dissolution of Company
Upon application filed, Tribunal in consideration of accounts and auditor’s certificate, passorder of dissolution
Liquidator to pay the balance into Company Liquidation Dividend and Undistributed AssetsAccount
Conclusion of winding-up
Date on which order has been reported to the RoC
Summary procedure for liquidation Section 361 of the Act
Eligible Companies
Class of eligible companies
Company has taken deposit
+
Deposit < Rs. 25 lakhs
Where O/s loan incl. secured loan < Rs 50
laks
Turnover < Rs. 50 crores
Paid up share capital < Rs. 1 crore
Other processes same as winding-up process, unless otherwise specified
Summary processApplication for
summary procedure
u/s 361 (1)
Order for summary procedure
by CG
&
Appointment of liquidation
Liquidator to submit report to
CG, whether any fraud has
been committed or not
Liquidator to sell all assets,
movable or immovable, within
60 days from order
Calling of sums receivable from
debtors, to be paid within 30
days of notice
Liquidator to invite all creditors
to submit proof of their claims
Liquidator shall submit final
report, based on which
dissolution order is passed
30 days 30 days
Winding-up Committee vs. Stakeholders’ Consultation Committee
Winding-up Committee as per Windingup Rules, 2020
Company Liquidator has to file an application for constitution of committee
Minutes of the meetings of winding-up committee-monthly filing of minutes until final report is filed
CL must call the meeting when need be; or on request of min. 1/3rd members
Must be constituted within 30 days of order
Max cap of 12 members;
Resolution passed by simple majority
Stakeholders’ Consultation Committee under the Code
Liquidator is required to form the committee under reg. 31A of Liquidation Regulations
No mandatory filing of timely minutes
Liquidator must call the meeting when need be; or on request of atleast 51% members
Must be constituted within 60 days of LCD
Max cap of 15 members
Resolution passed by , assent of min. 66% members (in value), present and voting
Winding-up under Act vs. Code (1/2)
Sl. No. Basis Companies Act IBC
1. Stay of Suits Cannot be initiated against the
company, except wIth leave of
NCLT
Complete bar on proceedings
against CD- liquidator may
proceeds against other, on behalf
on CD
2. Jurisdiction of NCLT U/S 280 U/S 60
3. Timeline Timeline for completion is
mentioned in the order, subject to
the report of CL
Prescribed timeline of 1 year
from LCD
4. Custody of companies’
properties
Deemed to lie with NCLT Remains with the liquidator
Winding-up under Act vs. Code (2/2)
Sl. No. Basis Companies Act IBC
5. Sale Committee NCLT may, on report of CL and
creditors, appoint a sale committee
No such explicit
provision
6. Date of value of debts Value of debts to be at the date of
appointment of provisional liquidator or
the order of winding up of the
company, whichever is earlier –
in case the winding up is pursuant to a
resolution passed by the company, the
reference date shall be the date of
resolution
Value of debt to be as
on liquidation
commencement date
Schedule of Forms (1/8)Form No. Subject
WIN-1 Petition for Winding up other than Company
WIN-2 Petition for Winding up by Company
WIN-3 Affidavit verifying Petition
WIN-4 Statement of Affairs
WIN-5 Affidavit of concurrence in statement of affairs
WIN-6 Advertisement of Petition
WIN-7 Notice of application for appointment of provisional liquidator
WIN-8 Order appointing provisional liquidator
WIN-9 Notice of appointment of provisional liquidator
WIN-10 Disclosure of conflict of interest by liquidator
WIN-11 Winding-up Order
WIN-12 Notice to Company Liquidator of winding up
Schedule of Forms (2/8)
Form No. Subject
WIN-13 Notice to registrar for winding up
WIN-14 Notice of winding up order
WIN-15 Application for leave to commence or continue any suit or proceeding under
section 279(1) of the Companies Act, 2013
WIN-16 Report of the Company Liquidator under section 281(1)
WIN-17 Provisional list of contributories
WIN-18 Notice to contributory of date fixed to settle list of contributories
WIN-19 Affidavit as to the posting of notices fixrng a date for the settlement of the list of
contributories
WIN-20 List of contributories as settled by Tribunal
WIN-21 Notice to contributory of final settlement of list of contributories and that his name
is included
WIN-22 Affidavit of service of notice on contributory
Schedule of Forms (3/8)Form No. Subject
WIN-23 Report of result of meeting of creditors and contributories under section 287(3)
WIN-24 Notice to creditors and contributories
WIN-25 Notice of meetings of creditors and contributories under section 287(3)
WIN-26 Notice of creditors' meeting under section 287(5) of the Companies Act, 2013
WIN-27 Notice of contributories' meeting under section 287(5) of the Companies Act,
2013
WIN-28 Notice of Meeting (General Form)
WIN-29 Notice of meeting (General Form)
WIN-30 Notice to officers of company to attend meeting of creditors or contributories
WIN-31 Affidavit as to the posting of notices of meeting
WIN-32 Nomination of Chairman by Company Liquidator
WIN-33 List of creditors (or contributories) present at a meeting
WIN-34 Report of result of meeting(s) of creditors/ contributories held under order of
Tribunal dated
Schedule of Forms (4/8)Form No. Subject
WIN-35 Form of general proxy
WIN-36 Form of special proxy
WIN-37 Quarterly Report with respect to progress of winding up under section
WIN-38 Declaration disclosing conflict of interest or lack of independence
WIN-39 Instructions regarding the preparation of the Statement of Account
WIN-40 Affidavit verifying account
WIN-41 Company Liquidator's Final Account
WIN-42 Requisition for audit of account
WIN-43 Advertisement of notice to creditors to prove their claim
WIN-44 Affidavit of proof of debt
WIN-45 Proof of debt of workmen
WIN-46 Notice to a creditor to attend the investigation or produce further evidence
WIN-47 Notice of rejection of proof of debt
Schedule of Forms (5/8)Form No. Subject
WIN-48 Notice of admission of proof
WIN-49 Appeal by creditor
WIN-50 Certified list of proofs tendered to, and admitted or rejected by, the Company
Liquidator
WIN-51 Notice by Company Liquidator requiring payment of money or delivery of property,
books, etc., to the Company Liquidator
WIN-52 Leave to make call
WIN-53 Affidavit in support of application for leave to make a call
WIN-54 Advertisement of application for leave to make a call
WIN-55 Order giving leave to make a call
WIN-56 Document making a call
WIN-57 Notice to be served with order sanctioning call
WIN-58 Application to enforce call
WIN-59 Affidavit in support of application for payment of call
Schedule of Forms (6/8)Form No. Subject
WIN-60 Order for payment of call amount due from contributory
WIN-61 Application for leave to examine person(s) under section 299
WIN-62 Order for examination under section 299
WIN-63 Summons to witness for examination under section 299
WIN-64 Order directing examination
WIN-65 Notice of examination
WIN-66 Notice to attend examination
WIN-67 Report to the Tribunal where person examined refuses to answer to satisfaction of
the person or authority referred to in rule 147
WIN-68 Warrant against contributory who fails to attend examination
WIN-69 Warrant for keeping in prison
WIN-70 Order to release prisoner on bail
WIN-71 Requisition to Court in whose jurisdiction the contributory against whom a warrant of
arrest has been issued is believed to be
WIN-72 Summons under section 339(1) of the Companies Act, 2013
Schedule of Forms (7/8)Form No. Subject
WIN-73 Summons under section 340(1) of the Companies Act, 2013
WIN-74 Points of claim under section 339(1) of the Companies Act, 2013
WIN-75 Points of claim under section 340(1) of the Companies Act, 2013
WIN-76 Notice to Liquidator to elect whether he will disclaim
WIN-77 Notice by Liquidator of intention to apply to Tribunal for leave to disclaim
WIN-78 Summons for extension of time for giving notice of intention to apply for leave to
disclaim
WIN-79 Order extending time for disclaimer
WIN-80 Notice of interest in property sought to be disclaimed
WIN-81 Application for leave to disclaim
WIN-82 Affidavit in support of summons for leave to disclaim a lease
WIN-83 Notice to parties interested in the property in respect of which the application to
disclaim is made
Schedule of Forms (8/8)Form No. Subject
WIN-84 Order giving leave to disclaim
WIN-85 Disclaimer of lease*
WIN-86 Notice of disclaimer of lease*
WIN-87 Order requiring parties interested in disclaimed lease to apply for vesting order
or to be excluded from all interest in the leasehold premises
WIN-88 Order vesting lease and excluding persons who have not elected
WIN-89 Advertisement as to declaration of dividend
WIN-90 Notice of dividend
WIN-91 Authority to Company Liquidator to pay dividend to another person
WIN-92 Schedule of Contributors to whom contribution is to be paid
WIN-93 Notice of return to contributories
WIN-94 Statement of unclaimed dividends or undistributed assets,
WIN-95 Request to deliver bill